Budget 2012: What Pranab could borrow from Manmohan's 1991 speech

Finance Minister Pranab Mukherjee will present the 2012-13 Union Budget on Friday. Mukherjee will have a tough time balancing the books - with revenues falling dramatically this year even while Sonia & Co are planning a steep hike in social spending next year.

At Firstpost, we empathise with Mukherjee’s predicament. To show that we really care for him, we have even prepared the first draft for the first half of his budget speech, leaving only the final numbers to be filled in by his North Block babus.

But we have a confession to make right at the outset. We simply plagiarised a large part of Manmohan Singh’s 1991 speech - the speech that raised him from humble bureaucrat to India’s most famous economic reformer. Pranab Mukherjee faces the same issues that Singh did in 1991 - and the remedies are the same: more reforms, better expenditure controls, reduction of subsidies, lower debt, fiscal consolidation, etc.

The only things we have changed are a few numbers, dates and words and references to events in 1991 - including Rajiv Gandhi’s assassination. The words we have introduced are in italics. The rest of the speech (barring the deletions) is as it was in the original.

So here goes our “scoop” of the 2012-13 budget speech - if Mukherjee deigns to look at it.

BUDGET 2012-13

Speech of Shri Pranab Mukherjee, Minister of Finance

March 2012

Sir,

I rise to present the budget for 2012-13.

2. The UPA-2 government, which assumed office barely three years ago, inherited an economy lurching towards deep crisis. The balance of payments situation is precarious. International confidence in our economy was strong until November 2010, when various scandals and corruption started rocking our polity..

Due to the combined impact of political instability witnessed thereafter, the accentuation of fiscal imbalances and the eurozone crisis, there was a great weakening of international confidence in our economy. There has been a sharp decline in capital inflows through commercial borrowing and non-resident deposits. We have been at the edge of a precipice since December 2010 and more so since April 2011. The external current account crisis constitutes a serious threat to the sustainability of growth processes and orderly implementation of our development programmes.

Due to the combination of unfavourable internal and external factors, the inflationary pressures on the price level have increased very substantially since mid-2010. The people of India have had to face double-digit inflation which hurts most the poorer sections of our society. In sum, the crisis in the economy is both acute and deep. We have not experienced anything similar in the history of independent India - except when I was finance minister in Narasimha Rao’s cabinet during 1991-96.

3. The origins of the problem are directly traceable to large and persistent macro-economic imbalances and the low productivity of investment, in particular the poor rates of return on past investments. There has been an unsustainable increase in government expenditure. Budgetary subsidies, with questionable social and economic impact, have been allowed to grow to an alarming extent. The tax system still has many loopholes. It lacks transparency so that it is not easy to assess the social and economic impact of various concessions built into its structure. The public sector has not been managed in a manner so as to generate large investible surpluses. Rather, these surpluses have been used to subsidise other unproductive expenditures like diesel, cooking gas and kerosene.

The increasing difference between the income and expenditure of the government has led to a widening of the gap between the income and expenditure of the economy as a whole. This is reflected in growing current account deficits in the balance of payments.

4. The crisis of the fiscal system is a cause for serious concern. The fiscal deficit of the central government, which measures the difference between revenue receipts and total expenditure, is estimated at more than 7 percent of GDP in 2011-12, as compared _with just 2.55 percent in 2007-08, the penultimate year of UPA-1._This fiscal deficit has had to be met by borrowing. As a result, internal public debt of the central government has accumulated to about 55 percent of GDP. The burden of servicing this debt has now become onerous. Interest payments alone are about 3 percent of GDP and constitute more than 21 percent of the total expenditure of the central government. This is worse than what it was in 1991. Without decisive action now, the situation will move beyond the possibility of corrective action.

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5. The balance of payments situation is most difficult. The current account deficit, which was about 1-2 percent of GDP for several years, is estimated to be more than 3.6 percent of GDP in 2011-12. This, too, is worse than it was in 1991. In 2003-04 our current account was actually in surplus at 2.3 percent of GDP, but has since been deteriorating.

These persistent deficits, which were (and continue to be) inevitably financed by borrowings from abroad, have led to a continuous increase in external debt, _including foreign currency convertible bonds, external commercial borrowings, and non-resident Indian deposits…_These strains were stretched to a breaking point on account of the European crisis since last year. The balance of payments has lurched from one liquidity crisis to another since 2008-09, after the Lehman crisis broke.

6. The price situation, which is of immediate concern to the vast mass of our people, poses a serious problem as inflation had reached a double-digit level in September 2011. The major worrisome feature of the inflation in 2011-12 was that it was concentrated in essential commodities. The prices of these commodities rose inspite of the two good monsoons in a row and hence the two successive bumper harvests. Inflation hurts everybody, more so the poorer segments of our population whose incomes are not indexed.

7. There is no time to lose. Neither the government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time, does not exist any more. Any further postponement of macroeconomic adjustment, long overdue, would mean that the balance of payments situation, now worsening, would become unmanageable and inflation, already high, would exceed the limits of tolerance. For improving the management of the economy, the starting point, and indeed the centre-piece of our strategy, should be a credible fiscal adjustment and macro-economic stabilisation during the current financial year, to be followed by continued fiscal consolidation thereafter. This process would, inevitably, need at least three years, if not longer, to complete. But there can be no adjustment without pain. The people must be prepared to make necessary sacrifices to preserve our economic independence and restore the health of our economy.

8. In the macro-management of the economy, over the medium-term, it should be our objective to progressively reduce the fiscal deficit of the central government, to move towards a significant reduction of the revenue deficit, and to reduce the current account deficit in the balance of payments. It is only such prudent management that would enable us to curb the exponential growth in internal and external debt and limit the burden on debt servicing, for the government and the country, to manageable levels. Indeed, we must make a conscious effort to reduce the internal debt of the government and the external debt of the nation, so that we rely more and more on our own resources to finance the process of development.

During the period of transition, it shall be our endeavour to minimise the burden of adjustment on the poor. We are committed to adjustment with a human face. Hence we will launch an affordable Food Security Bill, of which Soniaji is our biggest backer. It will also be our endeavour that the adjustment process does not adversely affect the underlying growth impulses in our economy. We do not have time to postpone adjustment and stabilisation. We must act fast and act boldly. If we do not introduce the needed correctives, the existing situation can only retard growth, induce recession and fuel inflation, which would hurt the economy further and impose a far greater burden on the poor.

9. Macro-economic stabilisation and fiscal adjustment alone cannot suffice. They must be supported by essential reforms in economic policy and economic management, as an integral part of the adjustment process, reforms which would help to eliminate waste and inefficiency and impart a new element of dynamism to growth processes in our economy. I am confident that, after a successful implementation of stabilisation measures and the essential structural and policy reforms, our economy would return to a path of a high sustained growth with reasonable price stability and greater social equity.

10. Thanks to the efforts of Pandit Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi, and the inclusive vision of UPA Chairperson Soniaji, we have developed a well diversified industrial structure. This constitutes a great asset as we begin to implement more structural reforms.

Now, I present my specific proposals for taxation and expenditure reforms in this budget….

Editor’s note: Dear Readers, at this point, we have stopped plagiarising the Manmohan Singh speech of 1991 since it gets into too many specifics of that period. For those who would like to read the full speech - both for its historic value and its potential for use as a reference point and plagiarisation, here is the link to the original.

Net-net, after reading Manmohan Singh’s speech of 1991, this is our takeout. Barring the fact that India’s economy is now much larger and its foreign exchange reserves more respectable, the fundamental economic problems presided over by the UPA regime have only worsened since it was re-elected in 2009 with an improved mandate.

Budget 2012-13 is thus the right vehicle to start setting things right. It can take all its key points from Budget 1991-92.